The Naked ECB

LONDON – The crisis in the eurozone remains far from resolution. Investor worries are now concentrated on the health of European banks, many of which have large exposures to Greece and the other southern European countries with severe fiscal problems.

Europe’s leaders have so far applied only plaster to the wounds. A stabilization fund has been established, but on a temporary basis. New arrangements for monitoring member states’ budget balances have been introduced, but they can do nothing about the stock of debt outstanding. And the European Central Bank has begun to buy government bonds, including those of Greece, at prices well above those that would prevail in a free market.

The latter move by the ECB has underscored a number of unresolved questions about the structure of the Bank and how it makes its decisions. Some issues that Europe’s decision-makers have wanted to keep under the carpet have now been rudely exposed.

The decision to buy Greek bonds directly was not unanimous. The world now knows that Axel Weber, the president of the Bundesbank, voted against it. His was one vote out of 22, but he represents 27% of eurozone GDP, so he cannot be dismissed as an insignificant outlier. It was the first time that the president of the ECB has had to reveal that a decision was not unanimous.